IR35 was introduced to stop employees working through intermediaries, such as Limited Companies or partnerships, in order to reduce that amount of tax they owe. The legislation requires you to review the terms of their contracts and determine whether the working arrangements point towards employment rather than self-employment.
Do I fall in or out of IR35?
Before starting your limited company you should have your contract reviewed to determine your IR35 status. Although wording of the contract can be changed in your favour, if your contract does not accurately reflect the way you are working, it will afford you no protection in the event of an HMRC investigation. The penalties for non-compliance can be extremely severe.
Contractors that are not caught by IR35:
- Those working as a consultant, freelancer and an additional (new) role within a business.
- You are working independently and the client has no real control over the duties you are performing
Contractors that are caught by IR35:
- Those covering a role already within the business such as a maternity cover, or a role that has been changed a limited time contract
Public sector contractors
If your company operates within the public sector, you will most likely fall under IR35.
If an assignment is inside IR35, you are unable to draw dividends. Your agency will need to deduct tax and NICs, pay the Employer’s National Insurance Contributions and remit the balance (including any VAT where applicable) to your limited company.
HMRC have developed an online IR35 employment service tool to assist in reaching an accurate judgement of an assignment. Should you require a second opinion, Cobia can perform a review of your company.
Private sector contractors
If your company operates within the private sector, we can review your employment status.
If our review indicates your working practices fall inside IR35 then additional PAYE and National Insurance will be payable should the view prevail. We can still help you maximise your pay.
If I fall under IR35 can I still maximise my income?
Even though you may fall under IR35, setting up a limited company can still help increase your income. You can set up a limited company but pay National Insurance.